CSA 401(k) Plan v. Pension Professionals Inc., 195 F.3d 1135 (9th Cir. 1999)-After employees of Computer Software Analysts, Inc. (CSA) discovered embezzlement from their employee benefit plan by Levi Carey, CEO of the company and co-trustee of the company’s 401(k) benefit plan, they filed suit against Pension Professionals, Inc. (PPI). CSA hired PPI to prepare financial reports and perform other third-party administrative services for the Plan.
The
terms of the agreement that CSA and PPI entered into specified that PPI was to
provide its services as a third-party administrator and not as a fiduciary of
the Plan. When PPI discovered the
embezzlement, it notified the plan trustees, Carey and Louise King.
PPI agreed to continue its third-party administration duties for the Plan
as long as Carey replenished the missing funds.
When Carey failed to adhere to the repayment schedule, PPI resigned as
administrator. However PPI failed
to notify law enforcement authorities or plan participants of the embezzlement.
This court found that PPI was not an ERISA fiduciary because there was no showing that PPI exercised actual control or discretionary authority over the Plan itself. Courts may impose liability for breach of fiduciary duty under ERISA only against ERISA-defined fiduciaries. Third-party administrators are not fiduciaries if they merely perform ministerial functions, such as the preparation of financial reports. PPI did not “step outside the scope” of rendering administrative services when it demanded the return of missing funds, since “the conditions that PPI proposed were designed to assert control over its own engagement, and not to exercise discretionary authority or control over the Plan's management or administration.” Furthermore, the court found that CSA could point to no case extending to non-fiduciaries an affirmative duty to inform beneficiaries of circumstances that threaten the funding of benefits.
